Can this man revive the Co-op? Richard Pennycook faces the unenviable task of leading embattled group

He wouldn't easily be mistaken for Tom Cruise, but Richard Pennycook’s youthful ambition was to be a fighter pilot, not a finance director.

His obsession, fuelled by the Top Gun film, was scotched by a trip to the opticians. Instead, Pennycook pursued the rather less exhilarating career of chartered accountancy, taking to the skies in his spare time.

Earlier this year he was forced to make an emergency landing into the hot seat at the Co-operative Group, where he is trying to rescue the struggling mutual – a role many would see as Mission: Impossible.

Co-Op: Richard Pennycook was thrust into the role of caretaker boss by the exit of Euan Sutherland, who walked out in a huff

Pennycook was thrust into the role of caretaker boss by the exit of Euan Sutherland, who walked out in a huff after details of his £6.6million two-year pay deal were leaked to the media.

As a parting shot, Sutherland described the Co-op as ‘ungovernable’, giving some idea of the mess he was leaving in Pennycook’s hands.

Weeks later, Pennycook had the unenviable task of announcing horrific losses of £2.5billion for the group – a sea of red ink so deep that it puts the future of the mutual and its lending arm, the Co-op Bank, into serious doubt.

His next big moment will be the publication of a probe into what went wrong at the Co-op by senior civil servant Sir Christopher Kelly, who was in charge of cleaning up the House of Commons after the MPs expenses scandal.

That report is expected to be scathing about Co-op’s takeover of the Britannia building society.

‘The Kelly report will make some very uncomfortable reading for some people,’ says Pennycook.

He is referring, presumably, to erstwhile bosses Neville Richardson, Barry Tootell and the disgraced Paul Flowers.

At the age of 50, Pennycook is a seasoned retailer with a string of crisis-management situations under his belt, including Laura Ashley, Welcome Break and HP Bulmer.

Troubled leaders: Richard Pennycook has the unenviable task of leading the funeral procession of the Co-op Group

Before Co-op, he was at Wm Morrison, where he played a key part, alongside chief executive Marc Bolland, in sorting out the mess created by the takeover of Safeway in 2004.

Despite, that, he was passed over in favour of Dalton Philips for the chief executive’s job when Bolland left to join Marks & Spencer.

He had strong support from some directors on the Morrisons board, but in the end he missed out because he was seen as not enough of a ‘meeter and greeter’.

Some retail industry figures believe that was a mistake.

With Pennycook at the helm, Morrisons would, they believe, have made a better fist of building an online business, boosting the non-food side and establishing local convenience stores.

Morrisons’ loss might be Co-op’s gain. Former colleagues describe him as ‘very tough, very bright, very trustworthy – the sort of man who will see the job through’.

But the scale of the crisis at the Co-op must be daunting, even for an experienced company doctor of Pennycook’s calibre.

As if the financial problems were not enough, a cabal of refusenik board members are blocking a series of governance reforms that virtually everyone else believes are necessary to the group’s survival.

‘They must decide whether the Co-op has a good future or to continue the inexorable decline of the past few years,’ Pennycook says. ‘There is no question this organisation has lost its way.’

The losses, he says, are ‘an absolute wake-up call that Co-op does not have a God-given right to exist’.

He frankly admits that the Co-op’s problems run much deeper than just the banking division, which recently admitted it needs another £400million of capital to survive, on top of a £1.5billion injection.

It is abundantly clear that Pennycook considers the Co-op’s £1.57billion takeover of Somerfield in 2008 to have been a major strategic error. ‘I looked at this deal when I was at Morrisons,’ he says, in a tone that conveys he would not have touched it with a bargepole.

Co-op has now written down the value of the Somerfield chain by £226million and is seeking to sell about 200 empty stores – ‘the size of a national retail chain’.

More than half of the stores taken on in the original takeover are to go – a figure that tells its own story about the folly of that merger.

‘These results are not just an accident that happened at the bank. They are the fruit of a number of years of management mistakes and poor acquisitions,’ he says.

‘The food business is profitable, and we are number two behind Tesco in convenience. We are at a turning point with food, with a new management team. We need investment in the shops. But the strategy is clear and is beginning to bear fruit.’

Maybe so, but Co-op’s future depends on its ability to reform its complex boardroom structures, and on the goodwill of the banks.

Ominously, six major lenders have sent in Bob Hedger, a top troubleshooter from the controversial business recovery unit at RBS, to help restructure Co-op’s finances.

Pennycook admits that the group has had to renegotiate lending terms, and that there is a question mark over whether Co-op is willing or able to stump up extra support for the bank.

‘If you ask a lawyer, we did not breach any banking covenants, but we had to make changes,’ he says. ‘We have been in constructive dialogue with the banks.’

Co-op Group now holds a stake of just 30 per cent in the bank, having been forced to cede control to US hedge funds due to financial woes.

‘We have not decided whether to subscribe to the £400million capital raising,’ Pennycook says, opening the prospect that the group’s stake may be diluted further.

That in turn raises the question of whether the lender could rightly describe itself as a Co-operative bank. ‘We are long-term shareholders in the bank. We expect to be the biggest shareholder for some time to come, but there is no fixed magic about a 30 per cent shareholding.’

Former colleagues describe Pennycook, who is married with two daughters, as extremely bright ‘which can be a trial for lesser souls’. ‘He can come across as rather austere and cerebral, but when you get to know him, he has a good sense of humour,’ says one.

Pennycook, who could receive a maximum pay package of £3.26million for this year, including an allowance for ‘acting up,’ does not want to keep the top job and will revert to being number two once a new boss is installed.

‘I have said very clearly that I do not intend to take the CEO job permanently, but I have not put a time limit on being here.

‘We need appropriate governance reform, then the job would be attractive to world class candidates. Once we are in calmer waters, then the board can go through a proper selection process.’

Perhaps. But since it seems unlikely there will be a scramble for the role, Pennycook could find himself piloting the Co-op for quite some time.